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Reducing Medicare Spending Through Electronic Information Exchange: The Role of Incentives and Exchange Maturity

47 Pages Posted: 16 Apr 2016  

Idris Adjerid

Mendoza College of Business

Julia Adler-Milstein

Harvard University - Technology & Operations Management Unit; Harvard University - PhD Program in Health Policy

Corey M. Angst

University of Notre Dame

Date Written: April 14, 2016

Abstract

Health information exchanges (HIEs) are entities that have emerged in healthcare delivery markets across the U.S. They enable the electronic sharing of patient information between disparate and fragmented healthcare providers and other stakeholders. HIEs are a type of inter-organizational information system (IOIS) – a technology infrastructure that permeates diverse industries (e.g. EDI, B2B exchanges) – and are intended to improve the quality and efficiency of care. Significant questions persist as to the extent of these benefits in practice, particularly in terms of reducing healthcare spending. We use transaction cost economics (TCE) to theorize that reductions in healthcare spending from HIEs will be pronounced when (1) incentives for payers and providers align and (2) HIE capabilities mature. We are able to test these conjectures because HIEs, unlike traditional IOIS, are typically confined to regional markets and develop heterogeneously between these markets, introducing variation in market incentives and HIE maturity. Leveraging a unique national panel dataset, we evaluate whether HIEs reduce spending for the largest insurer in the U.S. – Medicare – and whether incentives and HIE maturity modify the magnitude of reductions. We find significant cost reductions in healthcare markets that have established operational HIEs, with an average reduction in spending of $139 (1.4% decrease) per Medicare beneficiary per year. We also find that these reductions occur disproportionately in healthcare markets where providers have financial incentives to use an HIE to reduce spending and when HIEs are more mature. Our results inform an important open empirical question in the healthcare domain related to the value of HIEs, while also joining perspectives from TCE with the IOIS literature to understand the factors that may be relevant to IOIS value creation more generally.

Keywords: Inter-organizational information systems, transaction cost economics, business value of IT, IT and new organizational forms, economics of IS, health information exchange, Medicare

Suggested Citation

Adjerid, Idris and Adler-Milstein, Julia and Angst, Corey M., Reducing Medicare Spending Through Electronic Information Exchange: The Role of Incentives and Exchange Maturity (April 14, 2016). Available at SSRN: https://ssrn.com/abstract=2765098

Idris Adjerid (Contact Author)

Mendoza College of Business ( email )

361 Mendoza College of Business
Notre Dame, IN New South Wales 46556-5646
United States

Julia Adler-Milstein

Harvard University - Technology & Operations Management Unit ( email )

Boston, MA 02163
United States

Harvard University - PhD Program in Health Policy ( email )

14 Story Street
4th Floor
Cambridge, MA 02138
United States

Corey M. Angst

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN New South Wales 46556-5646
United States

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